If you’d like to go solar but can’t afford to buy solar panels, a solar power purchase agreement (PPA) could be your solution. PPAs offer a compelling alternative for homeowners seeking to adopt solar energy without the burden of high upfront costs.
PPAs are the newest form of financing, and before you sign an agreement, you should understand how they work, how they can benefit you, and what you give up when you agree to one.
Key takeaways:
With a power purchase agreement, you agree to purchase electricity from a third-party provider that installs solar panels on your property.
A PPA is best for homeowners who want solar power but don’t have the finances to purchase or maintain it.
Benefits of PPAs include access to green energy, reduced responsibility for maintenance, no upfront costs and predictable energy bills.
You are not eligible for tax credits and incentives if you have a PPA.
What is a solar power purchase agreement?
A solar power purchase agreement is a long-term legal contract between a homeowner and a solar energy provider. The contract describes how the solar panel company will install and maintain solar panels on a homeowner’s house (or property) and the financial obligations between the two parties.
In return for a new solar panel system (and a solar battery in some cases), the homeowner agrees to buy electricity generated by the system at a predetermined rate. The deal provides an attractive option for those who want to transition to solar energy without the financial burden of a large cash outlay and without having to maintain the solar system.
PPAs are also an alternative way for a homeowner to use solar power without leasing or taking out a loan to buy a solar system.
How do solar PPAs work?
Solar PPAs involve a solar provider installing and maintaining solar panels on a homeowner’s property. The homeowner buys the electricity generated at a set rate, typically lower than local utility prices. This arrangement makes solar energy accessible to households that couldn’t otherwise afford it because homeowners do not have to pay any upfront costs for the system.
The company takes care of system maintenance, reducing the homeowner’s responsibilities. For example, a homeowner must keep overhanging tree limbs off of solar panels but would not have to repair a panel if one stopped working or got damaged.
How much can I save with a solar PPA?
The amount of money you can save from a solar PPA depends on how much your local utility charges for electricity, how efficiently your new system runs and how much power you use to run your household.
Homeowners can usually expect immediate savings compared to traditional utility rates. Over time, as utility rates rise, the cumulative savings can be substantial, making solar PPAs financially attractive.
“This type of agreement can be beneficial for low-to-moderate-income households, as traditional means of securing solar energy can be expensive,” said Frank Magnotti, the CEO of ElectrIQ Power. “Customers also purchase solar energy at a fixed rate, which is lower than utility-generated electricity, allowing them to typically save up to 20% per month. More importantly, they can better predict energy bills, helping with financial planning.”
Where are solar PPAs available?
While a solar PPA can be an attractive option, it’s not available everywhere. At least 29 states, Washington, D.C., and Puerto Rico allow PPAs, according to the Solar Energy Industries Association (SEIA). If you reside in one of these states or territories, a PPA could be a promising means to harness solar energy and cut down on electricity costs after considering its advantages and disadvantages.
In some states that disallow PPAs — including Florida, Louisiana, Mississippi, North Carolina and South Carolina — leasing solar panels may be an alternative. With solar leases, you pay a set fee to rent the solar equipment instead of the energy it generates.
Contact your state energy office if the status of PPAs is unclear.
Solar PPA availability by state
|
PPAs available?
|
|
|---|---|
| Alabama | No |
| Alaska | Status unclear |
| Arizona | Yes |
| Arkansas | Limited to tax-exempt entities |
| California | Yes |
| Colorado | Yes |
| Connecticut | Yes |
| Delaware | Yes |
| District of Columbia | Yes |
| Florida | No |
| Georgia | Yes |
| Hawaii | Yes |
| Idaho | Status unclear |
| Illinois | Yes |
| Indiana | Status unclear |
| Iowa | Yes |
| Kansas | No |
| Kentucky | No |
| Louisiana | Status unclear |
| Maine | Yes |
| Maryland | Yes |
| Massachusetts | Yes |
| Michigan | Yes |
| Minnesota | Status unclear |
| Mississippi | Yes |
| Missouri | Status unclear |
| Montana | Status unclear |
| Nebraska | Status unclear |
| Nevada | Yes |
| New Hampshire | Yes |
| New Jersey | Yes |
| New Mexico | Yes |
| New York | Yes |
| North Carolina | No |
| North Dakota | Status unclear |
| Ohio | Yes |
| Oklahoma | Yes |
| Oregon | Yes |
| Pennsylvania | Yes |
| Puerto Rico | Yes |
| Rhode Island | Yes |
| South Carolina | No |
| South Dakota | Status unclear |
| Tennessee | Status unclear |
| Texas | Yes |
| Utah | Yes |
| Vermont | Yes |
| Virginia | Yes |
| Washington | Status unclear |
| West Virginia | Yes |
| Wisconsin | Status unclear |
| Wyoming | Status unclear |
Source: DSIRE (April 2024)
Advantages of solar PPAs
A solar PPA agreement has many advantages, making it a tempting choice. Benefits include access to green energy, reduced responsibility for maintenance, no upfront costs and predictable energy bills. These advantages contribute to the growing popularity of solar PPAs as a hassle-free and eco-friendly energy solution.
Green energy
A significant advantage of solar PPAs is their contribution to environmentally friendly energy consumption. Legalizing PPAs for solar energy could result in greenhouse gas mitigation equal to removing 88,000 to 148,000 cars from state roads, according to a 2020 impact analysis of PPAs in Florida conducted by researchers at the University of Central Florida and Ohio University.
Homeowners can reduce their carbon footprint by using clean, renewable solar power, aligning with personal sustainability goals.
Less responsibility
Solar PPAs alleviate the burden of paying for the maintenance and service of solar panels for homeowners. The provider is responsible for upkeep, repairs and any technical issues, ensuring a hassle-free solar experience for the homeowner.
No upfront costs
One of the key attractions of solar PPAs is the absence of upfront costs to go solar. Homeowners can transition away from the electrical grid without the financial strain of purchasing (or financing) and installing a system, making it a feasible option for more people. All homeowners have to do is pay for energy generation.
Predictable energy bills
Solar PPAs offer stability in energy costs. With a fixed rate for buying energy, homeowners can predict and budget their electricity expenses, shielding themselves from the volatility of utility prices.
Disadvantages of solar PPAs
While solar PPAs have many advantages, they also have potential drawbacks. Ultimately, you won’t own the solar system, rendering you ineligible for tax credits and other financial incentives and rates. It can also make it harder to sell your home and could put you on the hook for property tax increases.
Difficulty selling home
Selling a home with an existing solar PPA may pose challenges. Potential buyers may be hesitant because of the ongoing PPA contract, potentially complicating the sale process. Some agreements make selling a PPA-linked home easier than others.
“If you want to sell your home, the paperwork will say you can transfer the agreement to the new owner, but because the rates will not match the market, it’s unlikely the new owner will want to take on the burden,” said Robin Saidov, the owner/host of the podcast Your Energy Footprint and director of asset management at Axium Infrastructure. “You will wind up paying for the remainder of the contract out of your home equity.”
Increase property taxes
In some areas, solar panels may increase the assessed value of a property, leading to higher property taxes. However, 36 states recognize increased property taxes as a disincentive for homeowners considering solar PPAs and have signed property tax exemptions into law.
Lack of ownership
Homeowners with a PPA don’t own their solar panels, which limits their ability to benefit from potential increases in property value associated with solar installations. The solar panel owner, not the homeowner, receives tax benefits and can sell excess energy back to the grid for a profit.
Potential for extra fees
Some solar PPAs can include clauses that allow providers to impose added fees under specific circumstances. Possible fees include maintenance fees, penalties for early contract termination and charges related to system removal. You should review your contract to understand the potential for extra costs.
Is it better to lease, buy, or use a solar PPA?
The decision to lease, buy or choose a solar PPA depends on individual circumstances. The chart below outlines key considerations to help homeowners make an informed choice.
Leasing vs. buying vs. solar PPAs
|
Lease
|
Buy/Finance
|
PPA
|
|
|---|---|---|---|
| Availability | Widely available, usually same jurisdictions that allow PPAs |
Available nationwide but limited by financial capacity |
Widely available in 29 states, Washington, D.C., and Puerto Rico |
| Impact on home value | Minimal |
Potential increase |
Potential increase |
| Installation costs | Low |
High |
No upfront costs |
| Ownership | No ownership during lease term but option to purchase may be available |
Full ownership |
No ownership |
| Tax incentives | Usually retained by lessor |
Tax credit eligible |
Depends on PPA structure/Talk to installer |
| Repairs and upkeep costs | Lessor responsibility |
Homeowner responsibility |
Provider responsibility |
| Savings | Traditional energy bill replaced by often reduced, fixed monthly payment |
Long-term savings potential with incentives, lower energy bills and raised home value |
Short-term and long-term savings potential with immediate reduction in energy bills |
SEIA also offers a residential consumer guide, last updated in June 2023, to help homeowners who are weighing the decision to go solar.
What to consider before entering a solar PPA
Homeowners should understand the framework of a PPA and dive into the details before committing to one. Given that these arrangements differ from leasing or buying a solar system, be mindful of key terms, including fees, potential future charges, transfer to a new homeowner and site upgrades.
Contract terms and fees
Thoroughly review the contract terms, including the length of the agreement, escalation rates and any potential fees. Term lengths range from six to 25 years, although most last between 10 and 25 years.
“If a consumer is considering a lease or PPA, they should thoroughly read the rate escalation clause,” Saidov said. “Compare it to the annual rate that their utility has increased the generation portion of their bill over the last 10 to 20 years. They should confirm the agreement is transferable to the new owners if they sell their home. Check the warranty to ensure they aren’t actually on the hook for system repairs and generation.”
SRECs
Solar renewable energy certificates (SRECs) document that a solar panel system generates a certain amount of energy. SRECs can provide additional financial benefits to solar panel owners. Some PPAs may allow homeowners to retain or sell these certificates, enhancing overall savings.
Other financing options
Research alternative financing options to compare against the PPA. Additional state and local incentives and programs offered by your local utility may also be accessible.
A solar loan offered by third-party financers for installing solar panels, featuring fixed interest rates and structured repayments, can provide homeowners with a dedicated solution for solar energy investments.
You could take out a home equity line of credit (HELOC), where you borrow money against your home’s equity to pay for a solar PPA. You’d also remain eligible for popular incentives like the federal solar investment tax credit (ITC).
In some states, property-assessed clean energy (PACE) is a financing option for solar PPAs, enabling homeowners to fund solar installations through property tax assessments, with repayment linked to the property over an extended period.
Potential savings
Consider a solar PPA’s short- and long-term savings potential compared to other energy solutions. Evaluate how changes in utility rates may affect your energy savings for the duration of your agreement.
Property tax implications
Understand the potential impact of solar panels on property taxes. In some cases, increased property value because of a solar installation may result in higher taxes. Many states provide property tax exemptions.
Provider security
Review the financial stability and reputation of the solar provider. A reliable provider ensures the fulfillment of contractual obligations, including maintenance and electricity supply. What happens if your provider goes out of business?
Site upgrades
Assess whether you need site upgrades or modifications to add a solar panel system or gain optimal system performance. Sometimes, a developer handles solar photovoltaic (PV) system installation, operation and maintenance. In others, the solar installer and homeowner have varying responsibilities.
But for an existing home, the homeowner may need to invest in better infrastructure or home improvements to support a solar system setup, reduce installation costs or comply with local ordinances. This could mean repairing a rooftop, upgrading the home’s electrical panel and system or trimming trees surrounding the PV system.
Who are solar PPAs best for?
Solar PPAs are well-suited for homeowners who want to embrace solar energy without the upfront financial commitment of system ownership. They are ideal for those seeking immediate savings on energy bills, green energy enthusiasts and individuals who prefer minimal maintenance responsibilities.
Bottom line
Getting a solar power purchase agreement is a win for the average homeowner who wants green energy but can’t afford the upfront solar costs or the DIY effort. The solar installer takes care of the setup and installation. All homeowners have to do is agree, get the system installed and pay a fixed, agreed-upon rate for the energy produced by the solar system. You’ll see a noticeable drop in your monthly power bill and get clean, green energy without the extra fuss.
